Spare us more rate rises, say retailers

Retailers last night warned the Bank of England against further increases in interest rates after the latest snapshot of sales showed spending in stores growing at its slowest pace in more than four years.

Data from the British Retail Consortium indicated that shoppers were becoming more cautious even before the Bank's pre-emptive decision to raise the cost of borrowing last week from 3.5% to 3.75%.

The BRC said business during the three months to October grew at an underlying annual rate of 1.9%, down from 2.5% in the quarter ending in September and the weakest performance by the sector since August 1999.

"It is too early to tell whether this is a more dramatic than usual pre-Christmas pause or the start of the consumer economy running out of steam," said Bill Moyes, the director general of the BRC.

"Either way, it is strong evidence that the government and the [Bank's] monetary policy committee should not press consumers too hard. Shoppers' confidence remains fragile, and they are increasingly nervous over the speculation about the strength of the economy."

The BRC's sales monitor, which is produced in conjunction with the business services group KPMG, found that retail sales in October were 3.7% up on the same month in 2002.

On a like-for-like basis, which strips out any expansion of floor space, sales growth was 0.8%.

A breakdown of the report's findings showed that clothing sales were poor, while the strength of the housing market did little for demand for furniture and carpets.

Amanda Aldridge, the head of retail at KPMG, said: "Some retailers professing cautious optimism in the run-up to Christmas will have had their spirits dampened a little in October and will have been made even more nervous by the base rate increase last week.

"This leaves plenty of room for debate about the extent to which retailers should bring in pre-Christmas promotions."

The downbeat picture from the BRC coincided with government figures yesterday showing that fierce competitive pressures made it impossible for manufacturers to pass on higher fuel and raw material costs to customers last month.

With firms forced to accept slimmer profit margins as a result of higher oil costs, the price of goods leaving factory gates - an early sign of inflationary pressure in the economy - rose by just 0.1% in October. The annual rate of increase remained unchanged at 1.4%.

An even more benign picture was visible once the impact of budget changes to food, drink, tobacco and petroleum prices were excluded. On this basis, prices fell by 0.1% on the month, with the annual rate of increase down from from 1.4% to 1.2%.

On the input side, firms saw the cost of fuel and raw material rise by 1.6% in October, pushing the annual rate of increase up from 0.7% to 1.8%.

City analysts said the producer prices data were evidence that life remained tough for manufacturing, despite recent signs of global recovery. "The figures demonstrate just how difficult it is for companies to pass on higher costs at the present time," said Simon Rubinsohn, an economist at Gerrard. "Against this backdrop the authorities are only likely to move slowly in tightening policy any further."